Mandatory Advance Tax Payments and Article 37 LGT

Mandatory Advance Tax Payments

Mandatory payments. As seen in item 4, advance payments are payments on account of a charge to be settled later. Payments on account can be of three kinds:

• Installment payments: These are made by the same taxpayer who eventually makes the final settlement.
• Deductions (Withholdings): These consist of a subject who, when making payments to another, retains or detracts an amount from the total paid. This amount enters the Treasury in the name of the taxpayer and is realized when this settlement takes place at another time.
• Revenue on account: These function similarly to deductions but without causing a deduction on payment. They are often used in cases in which an individual pays another in kind; since the subject cannot withhold in these cases, the subject delivering the good or service to the taxpayer simultaneously calculates a monetary amount flowing into the Treasury on behalf of the taxpayer for the tax account that the taxpayer will settle in due course.

Functions and Benefits of Tax Prepayments

Installment payments play a role for both the Tax Administration and the subject itself, as they allow for the advancement of amounts. This softens the final fee payment for the subject and seeks a revenue stream that is more or less continuous for the Treasury. Besides this function, the figures of replacement, retention, or revenue on account play an important role in third-party information reporting and fiscal control. The requirement for all these forms of prepayment is becoming increasingly strict and is accompanied by significant formal obligations and information requirements.

Legal Framework: Article 37 of the LGT

The obligation to make payments on account is established in Article 37 of the LGT, which states:

1. It is required to make installment payments for taxpayers to whom each tax law imposes the obligation to pay amounts on account of the principal tax liability before it becomes payable.
2. A retainer is a person or entity to which each tax law imposes an obligation to detract and enter into the Tax Authority—in connection with payments to be made to other tax liabilities—a portion of the amount paid on account of the tax corresponding to them.
3. The person or entity that satisfies in-kind or monetary income, and to whom the law imposes the obligation to make payments on account of any taxes, is required to make such payments.